Tags: economy | recession | strong | trump | fed | mnuchin

Economy Too Strong to Plunge Into Recession Right Now

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Monday, 24 December 2018 11:34 AM Current | Bio | Archive

U.S. stocks contine to plunge amid heightened uncertainties caused by the partial government shutdown, the Syria and Mattis decisions, and reports that President Donald Trump wants to fire Federal Reserve Chairman Jerome Powell.

Trump wouldn't even stop criticizing the central bank on Christmas Eve, Reuters reported.

Trump blasted America’s independent central bank on Monday, describing the Fed as the only problem had by the country’s economy.

“The only problem our economy has is the Fed. They don’t have a feel for the market,” Trump said on Twitter. “The Fed is like a powerful golfer who can’t score because he has no touch - he can’t putt!”

On Sunday afternoon, the U.S. Treasury Department Office of Public Affairs tweeted first on its Twitter account (and then a couple of minutes later the Treasury Secretary himself on his Twitter account a rather unusual message, at least for investors) that reads: “Secretary Mnuchin conducted a series of calls today with the CEOs of the nation’s six largest banks (Bank of America, Citi, Goldman Sachs, JP Morgan Chase, Morgan Stanley and Wells Fargo).

The CEOs confirmed that they have ample liquidity available for lending to consumer, business markets, and all other market operations. He also confirmed that they have not experienced any clearance or margin issues and that the markets continue to function properly. Tomorrow, the Secretary will convene a call with the President’s Working Group on Financial Markets…”

The “President’s Working Group on Financial Markets” is also known as the “Plunge Protection Team” which is a working group that has been used to prop up the stock markets during downturns.

A logic question that any investor could ask is “Was it really that bad that the Treasury Secretary was obliged to intervene?”

The answer is “no.” Maybe that investors will have to learn living again with heightened volatility for hereon, which is in fact normal in “normal” markets and for now, selloffs are still not synonyms for collapses.

The Twitter feed of the Treasury Secretary seem to have calmed the markets, at least so far, also his tweets that were intended to suppress the uncertainties surrounding the question if President Trump planned firing Fed Chair Powell did their job.

Treasury Secretary Mnuchin tweeted:

“(1/2) I have spoken with the President @realDonaldTrump and he said “I totally disagree with Fed policy. I think the increasing of interest rates and the shrinking of the Fed portfolio is an absolute terrible thing to do at this time,...”

and “(2/2) especially in light of my major trade negotiations which are ongoing, but I never suggested firing Chairman Jay Powell, nor do I believe I have the right to do so,” he said in a second tweet.

Investors could do well taking a quick look at the Fed’s own FOMC Projections materials that were released on December 19  that show that the U.S. economy is set to grow still above trend albeit at a somewhat slower pace of about 2.4 to 2.7 percent in 2019 and at about 2.0 percent in 2020.

U.S. consumption is also seen as remaining sound and capital expenditures or “capex,” which are funds used by a company to acquire, upgrade, and maintain physical assets such as property, industrial buildings, or equipment also remaining at supportive levels.

Also the tax cuts and fiscal spending should remain supportive tailwinds albeit lower intense as for example what we have seen this year.

Notwithstanding there is a lot of noise about of a “coming” recession, I still can’t see a strong argument for it coming during 2019.

We all know that a recession will come someday, but with unemployment at a 50-year low, wage growth still rising and productivity also bound to rise, I can’t imagine seeing the first signs of a coming recession before the second half of 2020 at the earliest.

Of course, global risks remain if, for example, the trade tensions with China should escalate further while the risks coming out of Europe with Brexit and Italy should get out of hand in some way or another. 

Anyway, overnight we got positive trade news out of China as the Chinese are set to remove some import, export tariffs including alternative feed meals starting on January 1, Reuters reported.

From an U.S. investors’ standpoint, I would like say that a little bit less pessimistic view could help a lot keeping in mind that, after all, the U.S. isn’t performing that badly.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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We all know that a recession will come someday, but with unemployment at a 50-year low, wage growth still rising and productivity also bound to rise, I can’t imagine seeing the first signs of a coming recession before the second half of 2020 at the earliest.
economy, recession, strong, trump, fed, mnuchin
Monday, 24 December 2018 11:34 AM
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